The National Bank of Ukraine is   pushing ahead with its plans to gradually phase-out administrative restrictions  put in place in  2014-2015 to stabilize the situation in the money and FX markets. NBU Board Resolution No. 342, dated 7 June 2016, On Resolving the Situation in the Money and Foreign Exchange Markets of Ukraine has been issued to this effect.  

As was the case before, FX controls are eased in a gradual manner. The move aims to improve the business climate, while preserving macrofinancial stability. The rationale behind the decision was that the money and FX markets showed further signs of stabilizing, with the foreign exchange surplus observed in the interbank FX market since mid-March, driven by the rally in global commodity prices and stronger external demand for Ukrainian exports. These developments have enabled the NBU to purchase USD 180.0 million from the interbank market in June alone, brining the NBU’s net  FX purchases to  USD 953.3 billion  for the year to date.   These funds were used to replenish international reserves.

The NBU Board also noted   a gradual recovery of confidence in the banking sector, as evidenced by sustained growth in household deposits in domestic currency and the recovery of FX deposits in April 2016. There have been other positive developments. For example, households have long tended to sell more foreign currency to banks than they purchase from banks. Furthermore, the strong demand for government bonds denominated in foreign currency from banks points to the foreign exchange liquidity surplus in the banking sector. 

In view of the above, the NBU eases surrender requirements for foreign exchange proceeds from exports from 75% to 65%. The Ukrainian exporters are likely to benefit from the move.

Additionally, the maximum amount of FX cash and banking metals that banks are allowed to sell to an individual per day has been increased from an equivalent of UAH 6,000 to UAH 12,000. Additionally, the restrictions on the amount of operations involving the sale of banking metals shall not apply to coins made from precious metals (including investment coins of Ukraine).

 At the same time, the NBU has streamlined the rules governing currency exchange operations.  NBU Board Resolution No 341, dated 7 June 2016, On Amendments to Some NBU Regulations has been issued to this effect.

First, from now on, banks, financial institutions authorized to perform currency exchange operations are allowed to change the buying and selling exchange rates of the hryvnia against foreign currencies throughout a business day. This move will allow mitigating   banks' exposure to risks stemming   from exchange rate movements throughout a business day, and thus narrowing the spread between the buying and selling exchange rates.

Second, banks are allowed to set different buying and selling exchange rates at the cashier’s offices of banks, financial institutions, and their separate structural subdivisions, and currency exchange offices located in different domiciles. This will allow banks and financial institutions to better adjust to regional FX market conditions.

Third, banks are allowed to perform cross-currency operations at the exchange rate set by banks themselves rather than applying the official exchange rate set by the NBU.

Fourth, this resolution has expanded the list of foreign currencies that banks and financial institutions are allowed to deal in. From now on, banks and financial institutions are allowed to perform currency exchange operations with foreign currencies not only from the first group but also from the second group of the Classifier of Foreign Currencies.

Fifth, the NBU has eased the requirements for documents to be produced when performing currency exchange operations. As before, an individual intending to purchase foreign currency is required to produce an ID document (document proving your identity and residence status). From now on, a cashier is required to make copies of the relevant pages of the ID document and store them only if the hryvnia equivalent of the amount of foreign currency sold by a bank to an individual exceeds UAH 150,000. This move will enable banks and financial institutions to reduce FX transactions costs and speed up currency exchange operations for their customers.

The NBU Board believes that a set of these measures would pave the way for bringing the FX market out of the shadow.

The NBU has also revised restrictions on cash withdrawals from customers' bank accounts. Pursuant to Resolution No. 342, banks’ customers are allowed to withdraw cash from their accounts denominated in foreign currency and banking metals up to the equivalent of UAH 100,000, instead of the currently permitted UAH 50,000 per day.  This resolution has lifted restrictions on hryvnia cash withdrawals (individuals are currently allowed to withdraw UAH 500,000 per day from their bank accounts.   This move should further contribute to the restoration of confidence in the banking sector and encourage  inflows of deposits in domestic and foreign currency into banks.

To improve the investment climate, the NBU Board decided to allow repatriation of dividends accrued to foreign investors for 2014-2015.  Resolution No. 342 allows issuers of equity rights and shares on which dividends are payable, a depository institution that maintains  a securities account of a foreign investor (depositor),  or a foreign investor to repatriate dividends.  One individual is allowed to repatriate dividends abroad through only one authorized bank. The rules governing the replacement of an authorized bank performing these operations are similar to those that are applied to import operations.

To offset the impact that repatriation of dividends may have on the FX market, the NBU has imposed an upper limit on the amount of dividends that are allowed to be repatriated abroad. An individual is allowed to repatriate dividends abroad within the limits up to an equivalent of USD 1 million or up to 10% of the total amount of dividends payable abroad per calendar month.  If 10% of the total amount of dividends exceed an equivalent of USD 5 million, the amount of dividends allowed to be repatriated abroad should not exceed an equivalent of USD 5 million per calendar month.

This move will facilitate the repatriation of dividends without exerting undue pressure on the interbank FX market.  Going forward, the NBU intends to allow repatriation of dividends accrued before 2014, as well as dividends for 2016.

The amendments outlined in Resolution No. 342 (except the provisions relating to the repatriation of dividends) shall come into effect from 9 June  2016 and remain in effect through 14 September 2016. The provisions with regard to the repatriation of dividends shall come into force from 13 June 2016. The amendments outlined in Resolution No. 341   shall come into effect on a permanent basis from 15 June  2016.

However, regardless of the validity period of Resolution No. 342, the NBU is set to move ahead with plans to liberalize FX controls in a gradual manner if the FX market conditions and the economic situation are favorable.